The Fed and the School
Yesterday, Jerome Powell gave a big speech about the Federal Reserve’s approach to monetary policy at this moment. Everyone was watching.
People wanted to know about the Fed’s approach to the crisis at this moment. There were two possibilities, symbolized using the metaphor of hawks and doves. Let’s take a look at this bird imagery and figure out what Powell’s speech—if anything—means for school funding.
The Fed controls monetary policy. Remember that monetary policy messes with interest rates, which determine the cost of borrowing and lending.
In capitalism, money is a commodity too. It costs money to borrow and lend money. The interest rate is how much it costs. Like the price of money sort of. The Federal Reserve can raise these rates or lower them so it becomes easier or harder to borrow money.
It can also directly provide loans using the Treasury as a bank, which is what they did with their lending facilities.
So what would it mean to be a dove or hawk with monetary policy?
The dove in this metaphor is a peaceful, gentle, and non-threatening bird. Dovish monetary policy is peaceful, gentle, and non-threatening. It’s generous. It’s ‘accommodating’. In this case, dove doesn’t raise rates. It keeps it easy to borrow and lend. It keeps money less expensive, makes it easier for credit to go back and forth, less costly. A dove also wants more employment since there’s generally more to go around, which leads to more work and jobs.
A hawk would be the opposite: raise rates, make it harder, create tension and pressure by making credit more expensive. The hawk’s attitude towards employment is to make sure there’s a ‘natural rate of unemployment’, basically to make sure there’s always some unemployment, because it thinks unemployment is actually good for the economy. Of course this is bullshit, but the worry has to do with inflation, ultimately, which is bad.
So what was Powell?
Powell was a dove.
In macroeconomics world, this means—right now anyway, for the Fed—that Powell wants to get to full employment. He wants to be gentle, accommodating, and isn’t afraid of inflation.
Two consequences for school funding
What does this mean for school funding? Remember the two ways to finance stuff is grants and loans. Monetary policy covers loans. Fiscal policy covers grants.
When it comes to loans, Powell’s speech means that credit will stay cheap and districts and states can issue bonds for relatively less money. They can get less expensive credit for doing capital projects like infrastructure. In Philadelphia, this is sort of a ‘good’ thing particularly given the district’s slightly higher credit rating.
I don’t think there should be a credit market for school district bonds, but I’m not an accelerationist. Some socialists might think that higher rates could exacerbate contradictions and lead to revolution or something. I don’t think that’s right in this case. Given the structure as it is, the dove monetary policy is ‘better’ for schools.
A dovish Fed also means the possibility of more facilities like the MLF, though hopefully with much better terms.
But there’s another signal here for schools when it comes to grants and fiscal policy, specifically from the federal government. As the Biden administration rolls out its approach to the economic crisis, one of the big questions was whether they’d be neoliberal austerity mavens or would they get social-democratic, spendy, and generous?
Larry Summers’s austerity ghost could be seen haunting the White House, for instance. There was fear that neoliberal zombie concepts would eat everyone’s brains like it did in Obama’s response to 2008. But the Biden programs seemed better than that, more lively and helpful, and centrists like Chuck Schumer keep saying they won’t repeat the mistakes of 2008.
The reason for austerity, at least in economics gobbledeegook, is inflation. Keep spending down and you don’t risk prices of stuff going up.
But if the Fed isn’t afraid of inflation, and it’s their job to be watching out for it, then why should fiscal policy be afraid of inflation? Why wouldn’t we just spend and provision the people?
Powell’s dove speech sends the signal: don’t listen to Summers. Don’t use that old austerity-brain. Let’s do this differently. And that’s a big deal for school funding, since it could be that more grants could be available, but also that there’s a sea change possibly happening in economic thinking at high levels.
Given that the Biden administration is an uneven mix of progressives and centrists, and we’re generally in an interregnum now where people like Summers don’t automatically have legitimacy, there’s reason to feel plucky.
The socialist angle
I’d recommend that socialists dream big right now and push hard. The planets are aligning. Enough energy from the left could make things possible that haven’t been possible for two generations.
A Republican won a recent congressional race for example, winnowing the Democratic majority to nine votes. While this might look bad, it’s good for socialists. There are enough socialists in the House, with enough progressive backing, to really make waves.
If AOC, Rashida Tlaib, Ilhan Omar, Jamaal Bowman, Cori Bush and others speak out on spending stuff, calling for bigger and better programs, people across the spectrum will feel it.
Certainly the Fed speech is good for school funding for all the capitalist reasons: cheaper credit in the bond markets, more readily available grants from the federal government, and less austerity.
But these are reforms that largely keep the structure in place. The moment is ripe for a non-reformist reform, something transformational. When it comes to school funding, based on work I’ve been doing, I think we could demand:
Changing Title 1 funding formulae.
Requiring regional tax-base sharing programs for states and districts getting grants.
Expansive FEMA eligibility criteria.
Calling for an Education Lending Facility with generous terms.
These could all be part of a Green New Deal for Schools, which I happen to know might be in the works. Let’s do this!